Leveraged index funds generally work as expected on an intraday basis - but they're not intended for longer term holds. You can of course try it, but things will not turn out as you'd hope. Here's an article describing what happens:
Outside of tracking error and expense fees, there is a more fundamental issue. When the market goes down X%, you need it to go back up Y = 1/(1-x)-1 to break even. So the market goes down 10.0% one day and then up 11.1% the next, an investor in the normal 1x is back to where they started. A 2x investor is still down and a 3x investor is down even more. So the average daily noise of the market kills you.
> So the market goes down 10.0% one day and then up 11.1% the next, an investor in the normal 1x is back to where they started. A 2x investor is still down and a 3x investor is down even more.
Can you explain why that is? I would have expected that your gain or loss from the leverage funds relates only to the difference in price between when you purchased and when you sold (multiplied by the leverage).
planteen|6 years ago
Pyxl101|6 years ago
Can you explain why that is? I would have expected that your gain or loss from the leverage funds relates only to the difference in price between when you purchased and when you sold (multiplied by the leverage).